DRK PHOTO, a sole proprietorship, Plaintiff-Appellant, v. MCGRAW-HILL GLOBAL EDUCATION HOLDINGS, LLC; McGraw-Hill School Education Holdings, LLC, Defendants-Appellees.
No. 15-15106
United States Court of Appeals, Ninth Circuit.
September 12, 2017
870 F.3d 978
Argued and Submitted December 14, 2016 San Francisco, California
Christopher P. Beall (argued) and Thomas B. Kelley, Levine Sullivan Koch & Schulz LLP, Denver, Colorado, for Defendants-Appellees.
Before: MICHAEL DALY HAWKINS, MARSHA S. BERZON, and MARY H. MURGUIA, Circuit Judges
Concurrence by Judge BERZON
OPINION
HAWKINS, Circuit Judge:
This appeal raises the now often litigated issue of whether a stock photography agency—here, the Arizona-based agency DRK Photo (“DRK“)—has standing under the Copyright Act of 1976 to pursue infringement claims involving photographs from its collection. Ultimately, there is no bright line answer to this question. Here, we affirm the grant of summary judgment in favor of defendants, McGraw-Hill Global Education Holdings, LLC and McGraw-Hill School Education Holdings, LLC (collectively, “McGraw-Hill“), because DRK is a nonexclusive licensing agent for the photographs at issue and has failed to demonstrate any adequate ownership interest in the copyrights to confer standing. We also affirm the denial of DRK‘s motion to modify the scheduling order for leave to amend its complaint.
BACKGROUND
DRK is a stock photography agency that markets and licenses images created by others to publishing entities, including defendants McGraw-Hill. Since its inception in 1981, DRK has built a collection of hundreds of thousands of photographs, primarily depicting worldwide wildlife, marine life, and natural history. McGraw-Hill publishes K-12 educational, post-secondary, professional, and trade textbooks and publications. From approximately 1992 to 2009, McGraw-Hill licensed photographs from DRK to use in its textbooks. Their agreements were reflected in invoices, which set forth, among other terms, the fee charged, the specific photographs licensed, and the number and form of reproductions and distributions authorized under each “[o]ne-time non-exclusive” license.
With regard to its own licensing of the photographs, DRK historically has entered into “Representation Agreements” with the photographers of the images that make up its collection. These Representation Agreements have generally taken two forms: (1) agreements appointing DRK as the “sole and exclusive agent” to license and sell the covered photographs, and (2) agreements appointing DRK as a nonexclusive agent to license and sell the covered photographs. Only the latter are at issue in this appeal.1
DRK PHOTO will not require, nor ask a photographer or agency for exclusivity of an image until such time that DRK PHOTO has made an exclusive sale of that image.... Without this condition of an exclusive license/sale being made, all parties are free to promote and/or market all images without restriction.
They also provide that DRK and the photographer will split evenly the proceeds from all sales made by DRK.
In 2008, DRK endeavored to register copyrights for the photographs in its collection. To that end, each of the photographers whose images are involved in this litigation executed identical agreements entitled “Copyright Assignment, Registration, and Accrued Causes of Action Agreement” (the “Assignment Agreements“). In relevant part, the agreements provide:
The undersigned photographer ... grants to DRK all copyrights and complete legal title in the Images. DRK agrees to reassign all copyrights and complete legal title back to the undersigned immediately upon completion of the registration of the Images ... and resolution of infringement claims brought by DRK relating to the Images. The undersigned agrees and fully transfers all right, title and interest in any accrued or later accrued claims, causes of action, choses of action or lawsuits, brought to enforce copyrights in the Images, appointing and permitting DRK to prosecute said accrued or later accrued claims, causes of action, choses in action or lawsuits, as if it were the undersigned.
The Assignment Agreements also provide that DRK and the photographers will share equally the proceeds of any litigation award or settlement.
According to DRK, “[t]he primary purpose of the assignments was to effect a transfer [of] copyright ownership to DRK that was sufficient to support its copyright enforcement efforts.” In an initial transmittal email to photographers, DRK explained that with the Assignment Agreements DRK would “receive the authorization necessary to initiate and settle copyright infringement claims.” In subsequent email correspondence, DRK discussed the scope and effect of the Assignment Agreement in response to questions from several photographers as to how the Agreement would affect their dealings with other agencies licensing the same or similar photographs. DRK consistently confirmed that the purpose of the Agreement was to put DRK “in a legal position to bring copyright infringement claims against infringers” and to have an agreement with the photographers as to how settlement proceeds would be divided, “nothing more.” It further clarified that the copyright registration would allow DRK to bring infringement suits and that DRK had “no intentions of using it in any other manner.” In another email exchange, DRK explained that there was no “‘rights grab’ going on here.” And in yet another exchange, DRK assured a photographer that he understood “correctly” that “the registration of copyright [would] be [the photographer‘s] and not [DRK‘s], only in case of infringement [would DRK] then use it.”
PROCEDURAL HISTORY
In May 2012, DRK sued McGraw-Hill, asserting claims for copyright infringement premised on allegations that McGraw-Hill exceeded the scope of its licenses with DRK by printing and distributing more textbooks containing licensed images than authorized. In full, DRK alleged that McGraw-Hill made 1,120 infringing uses of approximately 636 unique photographs.
The parties eventually cross-moved for summary judgment, and the district court granted partial summary judgment to McGraw-Hill on the basis that DRK lacked standing to pursue infringement claims for photographs taken by photographers for whom DRK was acting as a nonexclusive agent.2 In relevant part, the district court determined that the Representation Agreements covering those photographs were nonexclusive licenses such that DRK could not be deemed the legal owner of any exclusive right pertaining to the images. The district court further found that the Assignment Agreements in “substance and effect” assigned “to DRK nothing more than the ‘bare right to sue.‘” Finally, the district court rejected DRK‘s remaining contentions that it was a beneficial owner of the copyrights at issue and that recent case law had changed the landscape of our court‘s earlier precedent regarding the assignment of infringement claims and standing.
Following the district court‘s grant of partial summary judgment, and after the deadline set by the scheduling order, DRK sought leave to amend its complaint to join three photographers as plaintiffs. The district court denied the motion explaining that DRK had not shown good cause to amend the scheduling order, joinder of the photographers was not warranted under the circumstances, and DRK had not been diligent in pursuing the requested amendment. This appeal timely follows.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction under
DISCUSSION
Section 501(b) of the Copyright Act of 1976 establishes who has standing to sue for infringement: “The legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the [registration] requirements of section 411, to institute an action for any infringement of that particular right committed while he or she is the owner of it.”
I. Legal Ownership.
“Any of the exclusive rights comprised in a copyright, including any subdivision of any the rights specified by section 106, may be transferred ... and owned separately.”
To support its claim of legal ownership, DRK points to (1) the Representation Agreements, which grant DRK a license to authorize use of the photographs; and (2) the Assignment Agreements, which purport to transfer to DRK the legal title to and copyrights of the photographs along with accrued infringement claims.
A. The Representation Agreements.
We recently held in Minden Pictures, Inc. v. John Wiley & Sons, Inc. that a stock photography agency that served as the exclusive licensing agent for allegedly infringed photographs had standing to sue for infringement under the Copyright Act. 795 F.3d at 1004-05. DRK contends that Minden creates a bright line rule that stock photography agencies have standing to bring copyright infringement claims by virtue of their agency agreements with their contributing photographers. However, DRK reads Minden too broadly.
Minden indeed analyzed whether a stock photography agency, Minden Pictures, Inc. (“Minden“), had standing to sue a publisher for infringement after the publisher exceeded the scope of its licensing agreement with Minden. Id. at 1001. Like DRK, Minden also entered into agency agreements with its contributing photographers under which the photographers authorized Minden to license and sell certain photographs to third parties. Id. at 999-1000. Importantly, in those licensing agreements, the photographers agreed to appoint Minden “as sole and exclusive agent and representative with respect to the Licensing of any and all uses of [specified photographs].” Id. at 1000. Although the agreements “permit[ted] the photographers to issue some licenses themselves,” the photographers were “prohibit[ed] ... from hiring a licensing agent other than Minden.” Id. The publisher argued that Minden‘s agreements with the photographers did not “grant ‘exclusive licenses’ to Minden to grant licenses to third parties, because the photographers retain[ed] the right to issue licenses themselves.” Id. at 1004.
[W]e agree with the Seventh Circuit that the essence of an “exclusive” license under the Act is that “the copyright holder permits the licensee to use the protected material for a specific use and further promises that the same permission will not be given to others.” I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996). Minden has been given just such a promise. Under the Agency Agreements, Minden is the “sole and exclusive agent and representative with respect to the Licensing of any and all uses” of the photographs. That is, the photographers have promised that Minden, and only Minden, will have the power, as the photographers’ licensing agent, to authorize third parties to reproduce, distribute, and display the photographs. That the photographers have retained some limited degree of authority to grant licenses themselves does not eliminate Minden‘s interest in the copyright as the sole entity to act as the photographers’ licensing agent. It merely means that both Minden and the photographers, under the terms of the Agreements, can prevent those third parties who have not received permission to use the photographs from using them.
Id. at 1004-05. As Minden explained, this concept of exclusivity as the right to exclude third parties, even when another entity can also exclude third parties, is consistent with patent law treatment of similar arrangements. Id.
In so holding, Minden declined to apply a rigid test to determine exclusivity and adopted a more flexible approach that allows for a license to be exclusive even if the copyright owner retains some subset of the rights at issue. See id. The key to determining whether Minden‘s agency agreements conferred a nonexclusive or exclusive license thus was not whether the photographers retained some fractional right but instead that the photographers promised “that Minden, and only Minden, will have the power, as the photographers’ licensing agent, to authorize third parties to reproduce, distribute, and display the photographs.” See id. at 1005 (emphasis added).
DRK‘s Representation Agreements here at issue, on the other hand, are devoid of that key provision. They also lack any limitation whatsoever on the photographers’ authority to contract with other licensing agents.4 In the absence of any such promise, DRK‘s Representation Agreements confer nonexclusive licenses and do not render DRK a legal owner for standing purposes. Cf. Bourne Co. v. Hunter Country Club, Inc., 990 F.2d 934, 937 (7th Cir. 1993) (nonexclusive licensing agent not a necessary party because it was neither a legal nor a beneficial owner of the copyright).
B. The Assignment Agreements.
DRK next contends that, even if it was not a legal owner originally by virtue of the Representation Agreements, it became the legal owner when the Assignment Agreements passed full legal title of each photograph and copyright along with all accrued claims to DRK. McGraw-Hill counters that the Assignment Agreements are nothing more than invalid attempts to transfer the bare right to sue.
In Silvers v. Sony Pictures Entertainment, Inc., 402 F.3d 881 (9th Cir. 2005) (en banc), we held that “an assignee who holds an accrued claim for copyright infringement, but who has no legal or beneficial interest in the copyright itself, [may not] institute an action for infringement.” Id. at 883. This conclusion naturally followed from the notable absence of the “right to sue” from the list of exclusive rights set forth in section 106 and was reinforced by the text and legislative history of the Copyright Act as a whole. Id. at 885-90.5
Later, we clarified that the purported transfer of legal title coupled with the transfer of accrued claims does not confer standing when the transaction, in substance and effect, merely transfers a bare right to sue. Righthaven LLC v. Hoehn, 716 F.3d 1166, 1169-70 (9th Cir. 2013). There, the plaintiff Righthaven LLC “was founded, according to its charter, to identify copyright infringements on behalf of third parties, receive ‘limited, revocable assignment[s]’ of those copyrights, and then sue the infringers.” Id. at 1168. Righthaven asserted copyright infringement claims against two defendants for their allegedly unauthorized online posting of articles from the Las Vegas Review-Journal. Id. Righthaven was not the owner of the copyrights of those articles at the time of the alleged infringement. Id. Instead, the copyrights were owned by Stephens Media LLC, the company that owns the Las Vegas Review-Journal. Id. After the alleged infringement, Stephens Media and Righthaven executed a copyright assignment agreement for each article. Id. Those assignments provided that, “subject to [Stephens Media‘s] rights of reversion, Stephens Media granted to Righthaven all copyrights requisite to have Righthaven recognized as the copyright owner of the Work for purposes of Righthaven being able to claim ownership as well as the right to seek redress for past, present, and future infringements of the copyright ... in and to the Work.” Id. (internal quotation marks omitted).
Both defendants moved to dismiss for lack of standing. Id. at 1169. Righthaven and Stephens Media then executed a “Clarification and Amendment to Strategic Alliance Agreement” in which they “purported to clarify that the parties’ intent in entering the SAA was to ‘convey all ownership rights in and to any identified Work to Righthaven through a Copyright Assignment so that Righthaven would be the rightful owner of the identified Work.‘” Id. Righthaven held that, despite their language purporting to transfer title and ownership, the copyright assignments in their substance and effect did no more than transfer a right to sue. Id. at 1172. Looking to the combined effect of the assignment and the SAA, Righthaven recognized that Stephens Media retained all exclusive rights to the articles and Righthaven had little if any right to exploit the works absent Stephens Media‘s consent. Id. at 1170-72. Thus, for all practical purposes, the assignments did nothing more than transfer a right to sue. Id.
Here, the parties similarly dispute whether the Assignment Agreements actually transferred ownership of the copyrights along with the accrued claims. As a preliminary matter, we reject DRK‘s contention that McGraw-Hill is precluded from challenging the effect of the Assignment Agreements. Although a third party may not raise noncompliance with
Righthaven instructs that the assignment agreements’ use of “language purporting to transfer ownership ... is not conclusive ... [and] [w]e must consid-
DRK argues it was error to interpret the substance and effect of the Assignment Agreements contrary to DRK and the photographers’ intent that DRK obtain the ownership interest necessary to register and pursue infringement claims on the copyrights at issue.7 DRK relies upon declarations submitted in opposition to McGraw-Hill‘s motion for summary judgment, which, like the clarification agreement in Righthaven, stated that the photographers “intended to transfer the copyrights to all ... photographs” with the “intent that DRK should retain an ownership interest in the images until the full resolution of any infringement claims relating to those images” and so that DRK could “protect, by lawsuits if necessary, against unpermitted uses.” As in Righthaven, however, “[t]he problem is not that the district court did not read the contract in accordance with the parties’ intent; the problem is that what the parties intended was invalid under the Copyright Act.” 716 F.3d at 1171. The undisputed evidence shows that for all practical purposes, the nonexclusive Representation Agreements continued to govern who controlled the exclusive rights associated with the photographs following execution of the purported copyright assignments; thus, the substance and effect of the Assignment Agreements was merely a transfer of the right to sue on accrued claims, which cannot confer standing. See Silvers, 402 F.3d at 890.
Although we are certainly sympathetic to the practical challenges attendant to policing infringement of photographic art in the publishing industry, those practical considerations cannot override the Copyright Act‘s “carefully circumscribed” grant of the right to sue. Silvers, 402 F.3d at 885. The nonexclusive licenses and assignments of the bare right to sue present here do not render DRK a legal owner of the copyrights under controlling law and thus are insufficient to confer standing.
II. Beneficial Ownership.
In the alternative, DRK contends that it is the beneficial owner of the copyrights for the photographs at issue.
Although section 501(b) provides that a beneficial owner of a copyright is entitled to bring an infringement action, the Copyright Act does not define the term “beneficial owner.” The classic example of a beneficial owner is “an author who ha[s] parted with legal title to the copyright in exchange for percentage royalties based on sales or license fees.” Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1144 (9th Cir. 2003) (quoting H.R. Rep. No. 1476, at 159); accord Broad. Music, Inc. v. Hirsch, 104 F.3d 1163, 1166 (9th Cir. 1997) (“Beneficial ownership arises by virtue of section 501(b) for the purpose of enabling an author or composer to protect his economic interest in a copyright that has been transferred.“). By contrast, an author who receives royalties for a work created under a work-for-hire agreement, and thus who never had ownership of the work, is not a beneficial owner. Warren, 328 F.3d at 1144-45.
We have not previously explored the full extent of who may qualify as a beneficial owner of copyright, and we need not do so here. Indeed, to support its arguments that it is a beneficial owner, DRK once again points solely to the Representation Agreements and the Assignment Agreements. Yet, under those agreements, DRK is a nonexclusive licensing agent and an assignee of accrued causes of action. To hold that DRK is a beneficial owner simply on the very bases that it cannot be deemed the legal owner would effectively negate our holding in Silvers and render portions of section 501(b) superfluous. Thus, on the specific facts of this case, DRK has failed to demonstrate that it is a beneficial owner. See Bourne, 990 F.2d at 937 (recognizing that a nonexclusive licensing agent is not a beneficial owner).
III. DRK‘s Motion to Amend.
Finally, DRK contends that the denial of its motion to amend was
The district court did not abuse its discretion in determining that DRK was not diligent in seeking leave to amend. As the district court highlighted, McGraw-Hill raised standing as an affirmative defense in its answer less than one month after the litigation was initiated and nearly two years before DRK finally sought leave to amend. McGraw-Hill again raised its standing argument in the parties’ Joint Case Management Report prior to the entry of the scheduling order. And, DRK‘s claims were dismissed in a parallel litigation on the very standing theory that McGraw-Hill raised in this case. Yet, DRK waited until after the adverse grant of summary judgment to seek leave to amend. Given these facts, the district court‘s findings that DRK had ample notice of the defense and failed to exercise diligence are not clearly erroneous, and the district court‘s denial of leave to amend was not an abuse of discretion. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992) (explaining that if party seeking amendment “was not diligent, the inquiry should end“).8
CONCLUSION
Ultimately, DRK failed to demonstrate or otherwise create a genuine dispute of material fact whether it is a legal or beneficial owner of any exclusive right under the copyrights at issue. Accordingly, DRK failed to meet the standing requirements of section 501(b), and summary judgment in favor of the defendants was warranted. Further, the district court‘s determination that DRK failed to exercise reasonable diligence in seeking leave to amend its complaint was not erroneous, and thus, it was not an abuse of discretion to deny DRK‘s motion for leave to amend.
AFFIRMED.
BERZON, Circuit Judge, concurring:
As the main opinion explains, under Silvers v. Sony Pictures Entertainment, Inc., 402 F.3d 881 (9th Cir. 2005), the transfer of the right to sue to a nonowner or nonexclusive licensee of a copyright right can never confer standing to sue for a copyright violation, no matter the relationship of the transferee to the copyrighted material. Main Op. at 985-86. I write separately to reiterate my view that Silvers was wrongly decided. In Silvers, I would have concluded that Nancey Silvers, the creator of the copyrighted work, had an interest in infringement sufficient to confer standing. By the same logic, I would conclude that DRK photo has an interest in infringement sufficient to confer standing to pursue the causes of action here at issue. Because Silvers remains controlling, however, I am compelled to agree with the majority‘s determination that DRK Photo lacks standing.
The Silvers majority impliedly recognized that the limitation on an owner of a copyright bringing suit “while he or she is the owner of it” should be read pragmatically. It acknowledged that a copyright owner may pursue claims accrued before he or she acquired the copyright. Permitting the new owner to sue for accrued claims “makes ... sense” because “[w]hen one acquires a copyright that has been infringed, one is acquiring a copyright whose value has been impaired,” and “[c]onsequently, to receive maximum value for the impaired copyright, one must also convey the right to recover the value of the impairment by instituting a copyright action.” Silvers, 402 F.3d at 890 n.1. A construction of § 501(b) that allows an accrued cause of action to transfer when copyright ownership transfers cannot be reconciled with a construction that always precludes assignment of the right to sue to any party not the legal or beneficial owner.
As my dissent in Silvers explained, I believe the question whether copyright claims are assignable should be similarly informed by the overall purpose of the Copyright Act. Id. at 893 (Berzon, J., dissenting). The issue in Silvers was whether an author of a script could bring an action for infringement when the work was created as a work-for-hire such that the author did not own the copyright. Disagreeing both with the majority‘s conclusion that only the present legal or beneficial copyright owner has standing to bring a claim, and with Judge Bea‘s assertion in a separate dissent that there ought to be “an entirely free market for accrued causes of action in copyright,” id. at 891 (Berzon, J., dissenting) (citing id. at 905 (Bea, J., dissenting)), I proposed that we chart a middle course. As I wrote, “I would hold that Silvers, given her status as the original creator of the contested ‘work-for-hire,’ may pursue the accrued claims assigned by Frank & Bob Films, while a complete stranger ... could not.” Id.
In other contexts, this circuit looks to “the general goal of the statute” in deciding whether to recognize assignment of claims created by federal statute. Misic v. Bldg. Serv. Emps. Health & Welfare Trust, 789 F.2d 1374, 1377 (9th Cir. 1986) (per curiam). For example, in the ERISA context, we permit a health care provider, assigned accrued causes of action for health welfare benefits by patients, to pursue reimbursement claims, notwithstanding a statutory provision identifying only “participants, beneficiaries, fiduciaries, and the Secretary of Labor” as having standing.
In my view, DRK Photo, as the agency authorized to license photographs on behalf of the photographers, has a significant interest in the way the photographs it licenses are used that should be sufficient to confer standing. That interest arises not merely from the photographers’ grant of the right to sue, but from DRK Photo‘s position as the licensing agent. The licenses in question were issued to McGraw-Hill by DRK, not by the individual photographers. And DRK negotiated with McGraw-Hill to determine the parameters of the permitted use, including the number of copies, geographic distribution area, language, and electronic use. Further, DRK received a portion of the royalties paid by McGraw-Hill.
In contrast to patent law, the primary purpose of which is to encourage invention and innovation, the goal of the copyright system is to encourage the publication and dissemination of copyrighted works: “For the author seeking copyright protection, ... disclosure is the desired objective.” Eldred v. Ashcroft, 537 U.S. 186, 216, 123 S.Ct. 769, 154 L.Ed.2d 683 (2003). By serving as a licensing agent, DRK Photo promoted that objective of disclosure and so was not “a complete stranger,” Silvers, 402 F.3d at 891 (Berzon, J., dissenting), to the process of “creation and publication of free expression,” Eldred, 537 U.S. at 219, 123 S.Ct. 769.
Under the pragmatic approach to the assignability of infringement claims that I continue to favor, I would find that DRK Photo could validly bring suit against McGraw-Hill. That approach would “remove what would otherwise be a significant practical disadvantage in seeking to protect a copyrighted work“: Given “the expenses of litigation” and “the burdens of coordination,” photographers may be reluctant “to bring suit individually, either in individual actions or in a single suit under Federal Rule of Civil Procedure 20.” Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1005 (9th Cir. 2015).
For now, however, Silvers’ prohibition on assignment of claims to any party other than the “legal or beneficial owner” controls. Because I concur with the main opinion‘s determination that DRK Photo is not the legal or beneficial owner, I must conclude that DRK Photo lacks standing to bring these claims.